Corporate Strategy

Question 1

The company is a recent phenomenon

Answer 1

Even where economies of scale encouraged larger production units, the limited size of local markets constrained the growth of individual firms

Question 2

With the increasing size of firms, management developed as a specialized and professional activity.

Answer 2

Modern corporations utilized administrative hierarchies and standardized systems of decision-making, financial control, and information management. These structures enabled companies to expand the size and scope of their activities.

Question 3

Consolidation through merger and acquisition resulted in the

Answer 3

the appearance of the first “holding companies” during the late 19th century.

Question 4

Strategy and Structure Growth Pattern

Answer 4

Simple Structure.
Functional Structure.
Multidivisional structure.
Matrix Structure.
Network Structure.
Joining point: Coordination and control problems

Question 5

The corporate-level strategy is concerned with two key issues:

Answer 5

in what product markets and businesses the firm should compete.

and how corporate headquarters should manage those businesses.

Question 6

The corporate-level strategy definition

Answer 6

“Corporate strategy is the way a company creates value through the configuration and coordination of its multimarket activities” (Montgomery and Collis, 1997, p. 5)

Question 7

The corporate-level strategy definition has 3 important aspects:

Answer 7

• Value Creation as the ultimate purpose of corporate strategy.
• The focus on the multimarket scope of the corporation (Configuration), including its product, geographic, and vertical boundaries.
• The emphasis on how the firm manages the activities and businesses that lie within the corporate hierarchy (Coordination).

Question 8

corporate-level strategy aim

Answer 8

it aims a concept known as synergy

Question 9

synergy

Answer 9

where the value added by the corporate office adds up to more than the value would be if the different businesses in the corporate portfolio were separate and independent.

Question 10

synergy in coporate level

Answer 10

In fact, the degree to which corporate-level strategies create value beyond the sum of the value created by all of a firm’s business units remains an important research question

Question 11

corporate level 3 Key Issues

Answer 11

Firm’s directional strategy
Firm’s portfolio strategy
Firm’s parenting strategy

Question 12

Firm’s directional strategy

Answer 12

The firm’s overall orientation towards growth, stability or retrenchment
Growth
Stability
retrenchment

Question 13

Firm’s portfolio strategy

Answer 13

-The industries or markets in which the firm competes 
Coordination of cash flow among units.
-resource commitment to best procedure.
-Resource commitment to new product.
-Ex, BCG matrix

Question 14

Firm’s parenting strategy

Answer 14

-The manner in which management coordinates activities and transfers resources and cultivates capabilities among product lines and business units.
-building of coorporting synergies through resource sharing and development.
-Check strategic factors.
-examine for performance.
-Analyze fit
Synergy

Question 15

Growth strategies

Answer 15

Concentration

Diversification

Question 16

Concentration

Answer 16

-Vertical 
Backward, Forward, 
-Horizontal
Expanding to a new geographical area
increasing the range of prodicts.

Question 17

Diversification

Answer 17

related

unrelated

Question 18

Stability strategies

Answer 18

Maintaining the status quo; popular with small business owners who have found a niche and are happy. (Dangerous in the long run)

• Pause/proceed with caution
• No change
• Profit strategies

Question 19

Retrenchment strategies

Answer 19

Troubled companies; poor performance weak competitive position, necessity to eliminate weaknesses that are dragging the company down.

Turnaround
Captive Company Strategy
Selling out
Bankruptcy
Liquidation

Question 20

Economies of scope

Answer 20

Sharing Activities

Transferring core competencies

Question 21

Growth strategies 2

Answer 21

But the decision to take action to pursue growth is never a risk-free choice for firms to make.

Indeed, effective firms carefully evaluate their growth options (including the different corporate-level strategies) before committing firm resources to any of them.

Question 22

Growth strategies 2 Basic forms

Answer 22

Concentration
Vertical growth
Horizontal growth

Diversification
Concentric Diversification  (RELATED)
Conglomerate Diversification (UNRELATED)

Question 23

Horizontal Growth

Answer 23

New Geographic Markets

New products, same Markets

Question 24

Why vertically integrate?

Answer 24

-Market Power (increase revenue)
Entry barriers
Down-stream price maintenance
Up-stream power over price

-Efficiency (lower cost)
Specialized assets & the holdup problem
Protecting product quality
Improved scheduling

Question 25

vertically integrate issues

Answer 25

Issue # 1: What is the objective for vertical coordination? Or put differently; what efficiencies, risk-sharing, or market power advantages are being sought?

Issue # 2: What organizational form (e.g. vertical contracts, equity joint ventures, mergers & acquisitions) best achieves the desired objective(s)?

Question 26

Vertical Growth

Answer 26

Backward integration

Forward integration

Question 27

Vertical Growth

Answer 27

-Vertical integration
Full integration
Taper integration
Quasi-integration
Long-term contract

Question 28

Transaction costs:-

Answer 28

The costs of negotiating, monitoring, and governing exchanges between people.

Question 29

Transaction cost theory

Answer 29

The goal of an organization is to minimize the costs of exchanging resources in the environment and the costs of managing exchanges inside the organization

Question 30

Bureaucratic costs - Internal transaction costs

Answer 30

Bringing transactions inside the organization minimizes but does not eliminate the costs of managing transactions. Also loss of specialized and professional activity.

Question 31

Using Transaction Cost Theory to Choose an Interorganizational Strategy

Answer 31

Managers can weigh the savings in transaction costs of particular linkage mechanisms against the bureaucratic costs

Question 32

Using Transaction Cost Theory to Choose an Interorganizational Strategy 2

Answer 32

• Locate the sources of transaction costs that may affect an exchange relationship and decide how high the transaction costs are likely to be
• Estimate the transaction cost savings from using different linkage mechanisms
• Estimate the bureaucratic costs of operating the linkage mechanism
• Choose the linkage mechanism that gives the most transaction cost savings at the lowest bureaucratic cost